Annual Report of the Audit and Evaluation Committee 2013-14
Office of the Public Sector Integrity Commissioner of Canada
Annual Report of the Audit and Evaluation Committee
For the fiscal year ending March 31, 2014
The creation of independent departmental audit committees that include a majority of members from outside the federal public service is an essential component of the Treasury Board (TB) Policy on Internal Audit. The fundamental role of these committees is to ensure that the deputy head has independent, objective advice, guidance and assurance on the adequacy of the department's control and accountability processes.
The importance of audit committees was further underlined in legislation when the Federal Accountability Act amended the Financial Administration Act to include the following requirements:
16.1 - The deputy head or chief executive officer of a department is responsible for ensuring an internal audit capacity appropriate to the needs of the department.
2006, c. 9, s. 259.
16.2 - Subject to and except as otherwise provided in any directives issued by the Treasury Board under paragraph 7(1)(e.2), the deputy head or chief executive officer of a department shall establish an audit committee for the department.
2006, c. 9, s. 259.
16.21(1) - A person who does not occupy a position in the federal public administration but who meets the qualifications established by directive of the Treasury Board may be appointed to an audit committee by the Treasury Board on the recommendation of the President of the Treasury Board.
Audit Committees and Parliamentary Agencies
The Treasury Board (TB) Policy on Internal Audit makes specific reference to offices of agents of Parliament, including the Office of the Public Sector Integrity Commissioner. Deputy heads of these organizations may, subject to compliance with sections 16.1 and 16.2 of the Financial Administration Act, authorize such departures from the specific policy requirements contained in the Policy as they may deem appropriate in light of the governance arrangements, statutory mandate and risk profile of the organization of which they are deputy heads.
Audit and Evaluation
Although audit and evaluation are the subjects of separate Treasury Board policies, they are closely linked. This reality is reflected in the organization of most federal organizations, where audit and evaluation staff may be managed within the same group. In the interest of good management and efficiency, the Office of the Public Sector Integrity Commissioner of Canada (PSIC) audit committee is also responsible for evaluation as set out in the TB Policy on Evaluation and consequently, is named the Audit and Evaluation Committee.
Role of the Audit and Evaluation Committee
The role of the AEC is:
- To provide objective and independent advice to the Commissioner regarding the sufficiency, quality and results of assurance on the adequacy and functioning of PSIC's risk management, control and governance frameworks and processes (including accountability and auditing systems).
- To review, using a risk-based approach, all core areas of PSIC management, control and accountability processes, including reporting.
- To provide such advice as may be requested by the Commissioner on matters for which the Commissioner, as accounting officer, is responsible to report before Parliamentary Committees.
- To provide strategic advice as requested by the Commissioner on specific emerging priorities, issues and accountability reporting, including the Commissioner's Annual Report to Parliament.
The role of the AEC is advisory and its sole accountability is to the Commissioner. In the event that significant, irreconcilable differences arise between the external members and the Commissioner, the external members may describe this disagreement in their annual report. In extraordinary circumstances, external members may seek to, or may be requested to, provide testimony regarding their differences to a Standing Committee of either House of Parliament.
Annual Plan and Annual Report
The AEC carries out its operations according to an Annual Plan that is prepared by the Chair and approved by AEC members. The document sets out the number of meetings planned for the coming year as well as topics to be covered at the meetings. The Chair of the AEC and the Chief Audit Executive (CAE) refer to the Plan when preparing the proposed agenda for each meeting.
At the end of each fiscal year, the Chair of the Committee prepares a report (this document) to the Commissioner that describes the activities carried out by the AEC during that year.
The Chair and members are selected by the Commissioner. The 2013-14 Committee consisted of:
Michael Nelson, External
Mario Dion, Commissioner
Guylaine Leclerc, External
Regular non-member attendees:
Joe Friday, Deputy Commissioner
France Duquette, Chief Audit Executive (CAE)
Patricia Fraser, Manager, Financial Services and Chief Financial Officer (CFO)
During 2013-14 the Committee met on:
June 18, 2013
April 8, 2014 (Note: this meeting was held in April in order to accommodate the schedule of a Committee member. However, all matters discussed at the meeting pertained to FY 2013-14)
In-camera sessions with the Commissioner, with the CAE, with the Chief Financial Officer (CFO), and with the Office of the Auditor General (OAG) representative, when present, as well as between external members only, were held at each regular meeting.
Support to the Committee
The Committee received information and support from management to enable it to carry out its duties and responsibilities effectively. The Commissioner also made available to the Committee its Operational Plans and minutes of the PSIC Executive Committee. As well, the Committee was offered access to International Monitoring Reports that are compiled by PSIC staff.
Summary of 2013-14 AEC Meeting Topics
Items considered by the AEC in 2013-14 included the following:
Office of the Auditor General (OAG) Audit of Financial Statements
- PSIC Financial Statements are audited each year by the OAG.
- Marise Bédard of the OAG presented the results of the audit of the 2012-2013fiscal year to the Committee on June 18, 2013. She advised that the results of the audit resulted in an unmodified opinion on the financial statements. No business risks that had significant audit implications were identified.
- Ms. Bédard confirmed that the audit had gone well and thanked officials of PSIC and CHRC (the financial services provider to PSIC) for their full cooperation.
- On the recommendation of the AEC, the Commissioner signed the audited financial statements.
PSIC 2013 Departmental Performance Report (DPR) and 2014 Report on Plans and Priorities (RPP)
- The TB Policy on Internal Audit requires that members "receive a copy" of the DPR and the RPP rather than review the documents. However, in the interest of transparency, the Commissioner decided that he would continue to provide Committee members with the opportunity to review and to provide comments on PSIC's DPR and RPP prior to their submission to Parliament. Based on their individual interests and availability, each member decided whether they would provide comments. During the reporting period, comments on both of these documents were provided to the CFO.
- At each meeting the Committee was provided with the opportunity to review and comment on operational statistics.
- Details were provided on management of disclosure files, including number of active files, active investigations, and ageing statistics on files.
- Committee members appreciated the quality of these presentations and asked that they continue to be part of each AEC meeting along with presentations by staff on PSIC internal processes such as handling of disclosures, which had been presented in a previous FY. Members felt that the information improved their capacity to provide the Commissioner with advice regarding operational performance and risks.
Budget and Human Resources
- The AEC reviewed all quarterly financial reports prepared by PSIC and provided comments to the CFO. At each meeting, members were presented with a report and analysis by the CFO on expenditures and forecasts.
- Each AEC meeting included a report on human resources issues, including hiring, staff turnover, training and planning.
- At the April 8, 2014 meeting, the AEC was presented with the audit report on Information Management Privacy and Compliance that had been conducted by Raymond Chabot Grant Thornton. Members appreciated the presence of the auditors, Mr. Marco Perron, Ms. Annie Dugas and Ms. Michelle Nadeau at the meeting. The auditors responded to questions and provided clarifications and context to members with respect to the observations and wording in the report. The AEC recommended the audit report for approval.
PSIC Risk-Based Audit Plan
- An updated corporate risk profile was presented to the committee at the April 8, 2014 meeting. The Committee was pleased with the content and presentation of the document and provided comments to the CAE, including feedback and views on risk. The Committee provided advice to the CAE on assessment of the skills of auditors that are proposed under the Standing Offer that is used in cooperation with other Agents of Parliament.
- It was agreed at the April 8, 2014 meeting that a review of the corporate risk profile would be appropriate. The Chair and the CAE will discuss appropriate timing for a review and will provide advice to the Committee.
Values and Ethics
- At the November 4, 2013 AEC meeting, the CAE briefed the Committee on the Office's draft Policy on Conflict of Interest. The policy came into effect on January 1, 2014.
AEC Membership and Meetings
- After a year of experience with a Committee of two, rather than three external members, the Commissioner confirmed that in consideration of the size of PSIC, the membership of the AEC was appropriate.
- During a discussion of the 2013-14 Annual Plan, members agreed that three meetings each year would be sufficient, with the agreement that additional meetings or telephone consultations could be arranged if the need arose.
Reports on PSIC by Others
- Like all government entities, PSIC is subject to laws, including its own governing legislation, which result in reports on PSIC by other Agents of Parliament.
- At each meeting, the AEC was presented with the results of any reports on PSIC activities that had been conducted. Reports by the Public Service Commission and the Access to Information Commissioner were presented and discussed. A report by the Auditor General of Canada (under the Public Servants Disclosure Protection Act) on a finding of wrongdoing was presented to the Committee by the Commissioner. The Commissioner explained the circumstances and the details of the disclosure as well as the Auditor General's findings, in a complete and transparent way.
- The AEC was satisfied that any issues or recommendations for improvement in all of the above-mentioned reports either had been implemented or would be added to the AEC Action Items Report.
Orientation and Learning Activities
In 2013-2014, AEC members participated in the following orientation and learning opportunities:
Office of the Comptroller General (OCG) Departmental Audit Committee (DAC) Symposium
- On November 4 and 5, 2013 the OCG held two learning and development events for members of departmental audit committees.
- On November 4, 2013 Michael Nelson attended a pre-symposium meeting of DAC chairs. The meeting was attended by the Comptroller General and by Chairs of DACs from small, medium and large departments. Each Chair was asked to briefly describe a major challenge or observation that their DAC was facing. Every DAC chair had a chance to speak during the 2-hour session. Four themes emerged from the comments of Chairs:
- Transition - Many DACs are about to reach (in 2014) the end of the second 4-year term of the original members. In DACs where all or most original members – including the chair – have been together for 8 years, there may be a tremendous loss of experience and mutual cooperation. Another aspect of transition is the turnover of DMs. Some DACs have had to adapt to a different style when new DM arrives.
- Learning - Chairs felt that it was extremely important for DAC members to understand the business and the operational and political environment of their departments and agencies. Some DACs in larger departments devote an entire day or more at each meeting to receiving operational and other briefings.
- Use of DACs for Non-Audit-Related Purposes - Some Chairs commented that up to 30% of the committee's time is spent on providing advice to deputy heads on matters other than audit. There was general agreement that the use of DACs for this purpose is a useful development as long as it does not prevent them from carrying out the primary duty, which is advice with respect to audits.
- Audit and Disclosure of Wrongdoing - There was discussion about the relationship (within departments) between processes for audit and processes for disclosure of wrongdoing. One key question was around communication of suspected wrongdoing among the audit organization, the officer responsible for disclosure and the deputy head. While there was not a lot of discussion because it was near the end of the session, it would appear that there is room for education and clarity, not just among audit committees but within departments, on this issue. Perhaps a panel at a future DAC symposium might be useful.
- On November 5, 2013, Michael Nelson, Guylaine Leclerc and France Duquette attended the DAC Symposium. Topics discussed at the symposium included lessons learned from a mature DAC (Fisheries and Oceans), the Government's Financial Management Transformation Agenda, an update on the operations of Shared Services Canada, and a briefing on Blueprint 2020 from the Clerk of the Privy Council. A full report on the proceedings is expected during 2014.
PSIC Performance Measurement Framework
- At the November 4, 2013 AEC meeting, the CFO presented an overview of changes made by Treasury Board on the measurement of results. The new methodology is ambitious. It introduces tagging and efficiency indicators that allow for a "whole-of-government" approach to performance measurement. AEC members requested that they be kept up to date as PSIC's adoption of this new approach evolves.
Observations of the Committee and Forward Agenda
This has been a year of stability for Office in terms of human resources, budget and workload. During this time the Commissioner and his staff have moved the Office and its reputation forward.
External members of the AEC understand that we are not a management committee. However our charter provides that we may provide advice to the Commissioner on a range of issues, including management of risks.
The comments in this section of our report are made from that perspective.
The Commissioner has staffed all of the key positions in the organization. The Committee has appreciated attendance by PSIC staff at AEC meetings and looks forward to hearing more presentations directly from staff in 2014-15.
The Commissioner has clearly made his executive team aware that with a fully staffed organization and a return to the base budget, operational decisions must take budget limitations into account. The AEC will continue to support the role of the Chief Financial Officer in her efforts to ensure good forecasting and budgeting practices.
The Committee is satisfied that sufficient resources are allocated to the audit function. However, there has to date been no requirement for expenditure on program evaluation. The Committee will monitor the allocation of resources to this new function in 2014-15.
During the reporting period, the Commissioner tabled 4 reports of wrongdoing. In the previous period there were 3 and the in the period before that, 1. Over the same three-year period, the Commissioner referred 6 complaints of reprisal to the Public Servants Disclosure Protection Tribunal. In 2010, the AEC commented that the greatest risk to the organization was that it would be seen to not be doing its job. The work of the Commissioner and his staff during the reporting period has greatly reduced that risk. Media reports regarding the Commissioner's reports to Parliament now seldom mention criticism of the organization. Instead they report on the wrongdoing itself and on the mandate of the Commissioner. This is a great accomplishment.
The Committee will include the following in its forward agenda for 2014-15:
- Providing advice and recommendations to the Commissioner on issues related to delivery of services, including performance measurement and communication with stakeholders.
- Reviewing audit and evaluation reports.
- Follow-up of Management Action Plans, including recommendations made in reports from other Agents of Parliament.
- Cooperation with the OAG and the OCG where appropriate with the PSIC's status as an Agent of Parliament.
- As a Committee, developing a better understanding of both the administration and the business of the PSIC through briefings on PSIC operations made by appropriate PSIC staff.
- Review of Quarterly Financial Statements and provision of comments where appropriate on the Report on Plans and Priorities, the Departmental Performance Report and the Commissioner's Annual Report to Parliament.
- Participating where appropriate in audit community learning events in order to exchange views with audit committee members in other departments and agencies.
- Providing the Commissioner with advice, when appropriate, regarding the Five-Year Review of the Public Servants Disclosure Protection Act.
- Monitoring progress on PSIC initiatives to reduce risks by improving physical and information technology security
Assessment of PSIC's System of Internal Controls, Risk Management and Governance Processes
The AEC meets as a committee with PSIC staff only three times a year, thus the role of the AEC with respect to providing conclusive advice to the Commissioner regarding the functioning of internal controls, risk management and governance processes is challenging.
In order to increase the reliability of the advice provided by the AEC to the Commissioner during the reporting period and in this report, the following steps were taken:
- At Each AEC meeting, the two external members held in-camera sessions with the CFO, the CAE and the Commissioner. The CAO and the CFO were asked at each session whether there were any irregularities they wished to discuss with the external members. There were none.
- During the reporting period, the Chair was in regular contact with the CAE and the CFO.
- PSIC's Quarterly Financial Statements were reviewed carefully by external members.
- PSIC provided the AEC Chair with minutes of PSIC Executive Committee meetings as well as PSIC Operational Plans during the reporting period.
- The AEC discussed the current Risk-based Audit and Evaluation Plan at its April 8, 2014 meeting and members agreed with its content and timelines. The AEC recommended to the Commissioner that planning for a review of the PSIC corporate risk profile begin in 2014-15.
- External members met in-camera on June 26, 2014 with Marise Bédard, the OAG Principal responsible for the audit of PSIC's 2013-14 Financial Statements. This audit did not examine internal controls, risk management or governance processes in a detail. However, Ms. Bédard did not identify through her audit any concerns that should be brought to the attention of the AEC, the CFO, the CAO or the Commissioner.
Having taken these steps, the view of the external members of the AEC is that PSIC's system of internal controls, risk management and governance processes are from our perspective, sound.
Assessment of the Capacity and Performance of the Internal Audit and Evaluation Function
The Committee noted that:
- The AEC meets regularly, including in-camera, has an external Chair, and membership is reviewed annually and renewed when required.
- OAG audits take place each year and OAG staff have commended the cooperation of PSIC officials with whom they worked in carrying out these audits.
- A risk-based audit and evaluation plan has been prepared and reviewed by the Committee. Over the past two fiscal years, planned audits took place and were brought to the AEC for review and recommendation to the Commissioner for approval.
- In cooperation with other Agents of Parliament, PSIC has begun to use a Standing Offer for the services of Raymond Chabot Grant Thornton. Results during this reporting period were positive.
The Committee will continue to review the capacity and performance of the internal audit and evaluation functions at PSIC.
Michael Nelson, Chair
On behalf of the PSIC Audit and Evaluation Committee